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Tue 30 Oct 2012 12:42 PM

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Coutts dropped Gulf clients after UK pressure

EXCLUSIVE: Private banking specialist was fined US$14m for failings in its anti-money laundering controls

Coutts dropped Gulf clients after UK pressure
Rory Tapner, Global CEO, Coutts.

Coutts, the private banking arm of UK government-backed Royal Bank of Scotland Group (RBS), dropped Gulf customers this year as part of a review of its client list following a US$14m fine by UK authorities for failings in its anti-money laundering controls, the lender’s global CEO told Arabian Business in an interview.

The 320-year old bank, which counts Queen Elizabeth II among its clients, was fined GBP£8.75m (US$14m) in March by the UK’s Financial Services Authority (FSA) for "significant and widespread" failings in its money laundering controls.

According to the FSA, Coutts had dealt inadequately with a type of clientele known as "politically exposed persons" - people whose prominent position in public life might have made them vulnerable to corruption.

The FSA found Coutts did not apply robust controls when starting relationships with high-risk customers and did not consistently apply an appropriate level of monitoring.

Rory Tapner, Coutt’s global CEO, said the FSA had not ordered the bank to drop any specific clients but it had voluntarily decided to end its relationships with a number of customers, including some in the Gulf.

“The area [where] we were weak was the box on source of wealth; source of income we were good… There was a handful of customers we did drop because we couldn’t complete this box… I’m afraid we did pick a few in this region, a couple in Russia [and] we picked two or three in London,” he told Arabian Business in an interview in Dubai.

Tapner also said it was likely that other banks could face similar fines as part of the FSA’s review of banking operations.

“As we started to look at this with the FSA we challenged them when they were talking about a big fine. At that scale of fine you are going to have to point at a bad name of someone.

“They said ‘No, we are getting tougher on banks who don’t have the processes we expect them to have as they put themselves at risk of getting caught out.’ That is what went wrong… There are still an awful lot of banks in the queue where it is not just the process, as we are now beginning to see,” he said.

Reports of the fine came as RBS's private wealth division, which includes Coutts and Adam & Company, saw its half-year profit for the six months to the end of June decline to GBP£109m (US$173m), compared to GBP£130m (US$207m) in the same period a year earlier. RBS blamed the dip in profits on higher expenses and increased impairments, despite a seven percent income rise.

In the time since the Middle East operation has expanded its operations in the UAE and Qatar. In February, the bank said it planned to hire 20 people this year and Amir Sadr, co-head Middle East, claimed their hiring policy is “bang on target”.

“The brand is so strong… We energise the brand in the Middle East… We have hired 21 people into our Middle East operation,” said Sadr. “We are moving into new premises at the end of October and that will enable us to grow a stronger franchise in the Middle East.”

Tapner said Doha is “a market we really like” and “Saudi is an important market”. Coutts divides up its Middle East operations into expatriate Saudis, the GCC and the Levant, primarily Lebanon, Jordan and Egypt.

In terms of regional acquisitions, Israel is one of Tapner’s main targets. “Israel is an interesting market. We have just decided we are going to invest in a few more banks in Israel. It is one of the markets we still want to cover.”

He declined to give exact figures for the size of the business in the Middle East, but says “it is an important part of the world”.

“Today, about 55 percent of what we do is UK business and 45 percent is international but, over the course of the next two-and-a-half years, I would expect that to swing the other way. That is not the UK getting smaller; it is the international piece getting bigger.

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